GAO Finds Questionable Pension Advance Practices

As part of its investigation, the GAO identified at least 38
companies that offered individuals lump-sum payments or advances in exchange
for receiving part or all of their pension payment streams. These companies
used multistep pension advance processes that included various other parties.
The GAO investigation report says at least 21 of the 38 companies were
affiliated with each other in ways that were not apparent to consumers.
Findings also show that all of the companies operated primarily as web-based
companies, and that some targeted financially vulnerable consumers with poor or
bad credit nationwide.

According to the report, the GAO received offers from six
out of 19 pension advance companies. These offers did not compare favorably
with other financial products or offerings, such as loans and lump-sum options
through pension plans. For example, the effective interest rates on pension
advances offered to GAO during its undercover investigation typically ranged
from approximately 27% to 46%, which were at times close to two to three times
higher than the legal limits set by the related states on the interest rates
assessed for various types of personal credit.

As a result of its findings, the GAO recommends that the
Bureau of Consumer Financial Protection, as well as the Federal Trade
Commission, review the pension advance practices identified in the report and
exercise oversight as needed. The Federal Trade Commission reports it has not
taken any public enforcement actions due in part to not receiving many
complaints related to this topic. The Bureau of Consumer Financial Protection
says its oversight has been limited to instances where the products met certain
characteristics.

The GAO also notes that consumers who are vulnerable to
financial exploitation may lack the information needed to make sound decisions
when it comes to pension advance transactions. The report recommends that since
the Bureau of Consumer Financial Protection facilitates coordinating federal
financial education, it could help ensure that information reaches relevant
pensioners.

The report documenting the results of the GAO investigation:

Describes
the number and characteristics of pension advance companies and marketing
practices;

Evaluates
how pension advance terms compare with those of other products; and